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I discussed both main rules for ensuring your house office deduction passes the red flag rule in a previous column. The house office can be used exclusively and as a principal and regular office to meet up with customers, clients or patients.
Now for a few more descriptive information on securing your deduction. Non-compliance with IRS regulations as outlined in Publication 587 (offered by irs.gov) could easily get you into trouble. Should you be audited and are going for a office at home deduction, the auditor may choose to see the office at home. He will gauge the space to check out apparent personal usage of the area. Providing video of the area, including a video of someone taking the measurements, could decrease the risk of a office at home visit; it’s worked before in audit, however, not always.
Use IRS form 8829 to take the house office deduction. You will have to indicate the full total square footage of your house followed by the full total square footage of the house office in the area provided. Make sure to include storage areas and work stations and also the office administrative area. If the full total square footage of your house is 1,000 and the square footage of the house office is 100, you can deduct ten percent of the next allowable costs:
- Mortgage interest or rent
- Property taxes
- Homeowner’ s or renter’s insurance
- Utilities–gas and electric, water, garbage disposal, propane
- Cleaning expenses such as for example housekeeper, carpet cleaner, etc.
- Telephone, if not really a dedicated business line. If the only phone line may be the home phone, the IRS allows the house office percentage against the full total phone bill.
- Depreciation of the house office and all major capital improvements that affect the house office
Capital improvements and repairs could be 100 percent deductible using cases. For instance, you use a wall of shelving in the house office exclusively for your house office use. As the shelving is specific to the house office and not the rest of the house, that is a completely deductible expense. This specific expense will be listed on your own Schedule C and deducted completely, instead of listed on form 8829 where in fact the 10 percent allocation can be used. But in the event that you repair a roof leak or replace the roof completely, that benefits the complete house, and the ten percent allocation applies.
Do not forget to expense or depreciate the contents of your house office, either. In the event that you dragged for the reason that old desk you found in college or a bookcase from the living room and a filing cabinet you’ve had for a long time, you can deduct the low of the price or the fair market value of the items. You probably don’t possess receipts to fall back on, so take pictures for storage in your tax file in case of an audit. If we’re talking high-end furnishings, get an appraisal. Then take the list to your tax pro to make sure these furnishings make it on your depreciation schedule. A section 179 expense deduction may make an application for what were previously personal-use items; these things will be depreciated over a seven-year period.
Your personal computer and other equipment, such as for example copiers, faxes, scanners and printers found in the home office aren’t at the mercy of the percentage allocation. If they’re used completely for business, they are completely deductible.
Now that you understand how it works, start your shoes, put your feet through to the desk and revel in your house office, where each day is casual Friday.